Commodities Drop to 10-Month Low as Silver Plummets on Debt, Growth Risk

By Chanyaporn Chanjaroen - Sep 26, 2011 3:39 PM GMT+0700
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Silver for immediate delivery slumped 12 percent to $27.3475 an ounce. Photographer: Carla Gottgens/Bloomberg

Commodities fell to their lowest in almost 10 months and silver tumbled below $28 for the first time since February on speculation Europe’s debt crisis will worsen, curbing raw-material demand. Copper plunged below $7,000 a ton for the first time in more than a year.

The Standard & Poor’s GSCI Spot Index shed 1.1 percent to 592.5 by 9:28 a.m. in London after slumping as much as 2.6 percent to the lowest since Dec. 1. The gauge slumped 8.3 percent last week, the worst performance since May. Cash silver plunged as much as 16.3 percent to its lowest level since November. Copper slumped as much as 7.6 percent, a seventh day of declines and the worst losing streak since December 2008.

European policy makers are facing mounting pressure to step up efforts to prevent their sovereign-debt crisis from further roiling the world’s financial markets and economy. Pacific Investment Management Co., which runs the world’s biggest bond fund, is forecasting that advanced economies will stall over the next year as Europe slides into a recession.

“The state of the global economy that we are seeing now is worse than what we had three to six months ago,” Dominic Schnider, global head of commodity research for UBS AG’s wealth- management unit, said today by phone in Singapore. He predicted benchmark commodity indexes will drop a further 10 to 15 percent from now.

The S&P GSCI Spot Index ended last week down 21 percent from the almost three-year high in April, meeting the common definition of a bear market. The last time the index fell that much was in 2008 when the global economy sank into its worst slump since World War II.

Money Managers

Money managers cut the combined net-long position across 18 futures and options by 20 percent in the week ended Sept. 20, the most since February 2010, data from the U.S. Commodity Futures Trading Commission show.

Silver for immediate delivery slumped 6.2 percent to $29.225 an ounce, after earlier today touching $26.07. Cash gold fell 3.2 percent to $1,604.43, more than $300 below its record $1,921.15 an ounce on Sept. 6, after earlier today touching $1,532.72, the lowest level since July.

Morgan Stanley attributed silver’s drop to growing concerns about industrial usage and the “high retail component of the investor base,” analysts led by Hussein Allidina wrote in a report. “The reversal in gold provides an attractive entry point for our preferred metal.”

Three-month delivery copper fell 4 percent to $7,067 a ton, taking this year’s loss to 26 percent, after earlier today touching $6,800, the lowest level in more than a year. The contract lost 15 percent last week.

“Copper is clearly in a downward trend as investors see no improvement in the macro environment, only deterioration,” Zhang Zhenghua, an analyst at Minmetals Futures Co., said today by phone from Shanghai.

Crude oil for November slid 1.5 percent at $78.65 a barrel on the New York Mercantile Exchange.

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net